PRESS RELEASE

Wrap Technologies reports second quarter 2022 results


Tempe, Arizona – Wrap Technologies, Inc., a global leader in innovative public safety technologies and services, today announced results for the second quarter ended June 30, 2022.

Second Quarter Highlights

  • New management completed its initial business review and developed a multi-year strategic roadmap for growth, profitability, and enhanced value creation.
  • Operating expense was $5.2 million in Q2 2022, representing a 32% year-over-year decline and reflecting new management’s focus on achieving greater efficiencies.
  • Net Revenues were $1.2 million in Q2 2022, compared to $1.9 million in Q2 2021, reflecting the Company’s transition to the next generation BolaWrap.
  • Gross Profit was $0.5 million in Q2 2022, resulting in a 39% Gross Margin, compared to a loss of ($0.1) million in Q2 2021.
  • >Net Loss per share was ($0.12) in Q2 2022, compared to ($0.20) in Q2 2021.
  • Trained law enforcement agencies grew to more than 1,130, representing 41% year-over-year growth.
  • Certified officer instructors grew to more than 3,660, up 31% year-over-year growth.

                                                                                                  Three Months Ended         Six Months Ended
Unaudited                                                                              June 30,                                 June 30,                        
(Amounts in thousands, except per share data)        2022              2021                2022              2021      
Total revenues                                                                 $ 1,165         $ 1,934            $ 2,764         $ 3,476
Net sales growth (1)                                                           (39.8)  %       132      %           (20)   %       128       %
Gross margin rate                                                               39      %       (3) (2)   %           41      %       16 (2)    %
Net loss                                                                            $ (4,785)       $ (7,799)         $ (10,217)     $ (13,228)
Net loss per basic and diluted share                           $ (0.12)         $ (0.20)           $ (0.25)         $ (0.35)

(1) As compared to the prior-year period.
(2) Excluding one-time expenses of $0.7 million the gross margin rate was 36% for QTD 2021 and 37% for the YTD 2021.

Management Commentary

TJ Kennedy, Chief Executive Officer and a Director of Wrap, commented:

“In the second quarter, our new management team assessed all facets of the business and developed a multi-year strategic roadmap for accelerating growth, achieving profitability, and enhancing value for shareholders. To achieve sustained revenue growth, we’re focused on driving recurring sales in the U.S., ramping up sales of the new BolaWrap 150 internationally, and implementing a customer success function to help expand existing agencies to full patrol-wide BolaWrap deployments. In support of these priorities, we have added a dedicated inside sales function to improve our velocity of new leads and started pursuing expanded distributor and partner relationships. To drive stronger margins and support long-run profitability, our strategic roadmap also accounts for improved pricing on BolaWrap 150 devices and cassettes, and we began to charge fees for our respected training services. We have also implemented changes to how we sell Wrap Reality resulting in new wins and solidified our go-forward virtual reality offering as a Software as a Service (SaaS) model.

Management is already implementing its new strategic roadmap with urgency and purpose, meaning changes and new initiatives will become increasingly evident in the coming quarters. Our commitment to action should be evidenced by the 32% reduction in operating expense achieved in the second quarter. By containing costs, optimizing pricing, and sustaining sales growth, we expect to be able to reduce losses and improve cash flow. We have a viable path to getting to a break-even position by the end of 2023 and potentially achieve profitability by the end of 2024.

While the transition from the BolaWrap 100 to the Bola Wrap 150 as well as geopolitical tensions and macroeconomic headwinds have impacted us in recent quarters, we remain uniquely positioned to deliver best-in-class technologies and services that can empower law enforcement officers across the globe to have safe, effective encounters with minimal use of force. Wrap has a distinct value proposition in a growing addressable market. We firmly believe that our planned changes and strategic priorities will drive significant sales growth in the future and put us on a path to sustainable profitability.”

Second Quarter Financial and Operational Summary

Net Sales

  • Generated net revenue of $1.2 million for 2Q22, compared to $1.9 million for 2Q21.
  • Incurred discounts of approximately $0.2 million during 2Q22 as a result of promotional programs intended to encourage customers to upgrade to the BolaWrap 150. Gross revenue prior to promotion discounts and incentives were $1.4 million.
  • Backlog at the end of the 2Q22 was $0.1M.

Gross Profit

  • Generated approximately $0.5 million of gross profit in 2Q22 resulting in a 39% gross margin, compared to a loss of $60 thousand for 2Q21. The prior year included $0.7 million of one-time expense incurred related to a line change and transition to building the BolaWrap 150.
  • We were impacted by higher raw material prices in the second quarter to obtain certain parts and delays in our supply chain that affected our production in Q2. Our margin is expected to improve significantly in future quarters as these issues dissipate.
  • We expect our recently released upgraded model of our flagship BolaWrap 150 product will contribute to meaningful gross margin expansion over time.

Selling, General and Administrative (SG&A) Expense

  • SG&A expense decreased approximately $2.8 million in 2Q22 compared to 2Q21 due to significant new cost containment efforts focused on reducing SG&A expense to be more in line with overall sales.
  • Share-based compensation decreased to $0.6 million compared to $2.0 million for 2Q21, due to the stock price in 2Q22 compared to 2Q21, as well as certain issuances of stock in the prior year period.
  • We expect expenditures for SG&A expense for the balance of 2022 to remain below the prior year due to active cost containment efforts.

Research and Development (R&D) Expense

  • R&D expense increased approximately $0.3 million in 2Q22 to $1.5 million, as compared to 2Q21, due primarily to enhancements to the new BolaWrap 150, development of Wrap Reality, and other new R&D initiatives.
  • We continue to invest in R&D as we expand important research initiatives in response to identified market opportunities in the non-pain compliance and non-injurious law enforcement market, including further development of WRAP Reality for law enforcement, correction, and others in public safety.

Outlook

Although near-term growth is difficult to project, management anticipates full-year sales will grow in 2022 as supply chain disruptions ease and the transition from the BolaWrap 100 to the BolaWrap 150 accelerates. We also expect to see increased sales momentum in the back half of 2022 internationally as we raise awareness for the BolaWrap 150 and transition international customers to the next generation device.

Looking beyond this transitional year, we expect strong sales growth for the BolaWrap 150 and Wrap Reality in 2023 and beyond. Our new strategic roadmap and the expected growth, coupled with continued cost savings and expense management, should lead to further reduction of the Company’s cash burn going forward. As a result, we are targeting a cash flow break-even point by the end of 2023 and see the potential for profitability by the end of 2024.

Webcast and Earnings Conference Call

The Company will host an investor conference call at 5:00 pm ET today to review its results. The investor conference call can be
accessed using the following link. Please join the webcast 5-10 minutes prior to the start time.

WEBCAST LINK: Link to Wrap webcast

This call and all supplemental information can be accessed on Wrap’s investor relations website: https://wrap.com/investors/
A recording of the conference call will also be available on the Company’s investor relations website.

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